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Lease finance in sweden

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  • 1. By Shashwat Dev Roll no. 873 Semester V National Law University Jodhpur-2013
  • 2.  The economy of Sweden is a developed export-oriented diverse economy aided by timber, hydropower and iron ore.  The main industries include motor vehicles, telecommunications, pharmaceuticals, industrial machines, precision equipment, chemical goods, home goods and appliances, forestry, iron and steel.  Traditionally, a modernized agricultural economy that used to be employing over half of the domestic workforce, today, Sweden further develops engineering, mine, steel and pulp industries that are competitive internationally such as the companies of LM Ericsson, ASEA/ABB, SKF, Alfa Laval, Aga and Dyno Nobel.
  • 3.  Leasing is of great significance to the supply of capital and investment sales in Sweden, as in the rest of EU.  Leasing and renting of equipment to commercial premises has been the standard.  There is no real aggregated figures on how different types of entitities make use of leasing and renting in Sweden.
  • 4.  Sweden accounts for 20 per cent of all new investments in machinery and equipment via the lease route. With regard to new vehicles, it is estimated that 60 per cent are financed by leasing. The book value of the lease stock totalled just over SEK 190 billion, of which under SEK 60 billion pertained to foreign lessees.”
  • 5.  Association Profile: Association of Finance Companies (AFINA) The nature of the leasing industry of Sweden can be analysed by segmenting it into various kinds of leases and the proportion of industry they comprises3, namely  Equipment and Automotive Leasing: The total new equipment and automotive leasing volumes stand at € 9707 million for the year 2012.
  • 6.  Real Estate Leasing: The total new equipment and automotive leasing volumes stand at € 3 million for the year 2010 and for H1 2011 € 3 million5. Thus representing that real estate leasing has not gained much of usage in Sweden.  Leasing is well established in Sweden, both as a form of financing equipment and as a form for vendors to promote their products. Despite the financial turmoil of 2008 leasing in Sweden has been a reliable source of corporate finance and has proved to be an good and effective tool for new investment in equipment.
  • 7.  Of all investment made in machinery and other types of equipment almost 22% are being made through leasing. International leasing is mostly carried out by a few large leasing companies owned by export industry and banks.6  All types of companies, SMEs and large firms benefit from leasing as lessees. Also, public bodies lease equipment to a significant extent. Consumer leasing exist but is of little significance in Sweden.
  • 8.  Sweden though being a regulated market is however minimally regulated when it comes to leasing industry. “The tax authorities have not made a strong attack on finance leasing in Sweden as in some other markets.”As a result, finance leasing remains significant in the car fleet market, which accounts for 25 to 30 per cent of all new car sales in Sweden
  • 9.  IAS 1712 stipulates that contract should be either classified as either finance lease or operating lease. A financial lease is an agreement where substantially all the risk and reward associated  with ownership transfers form the lessor to lessee. The ownership and title may, but not necessarily be transferred to lessee form lessor. In Sweden, lease contracts usually do not transfer ownership.13
  • 10.  The real estate leasing industry is Sweden is not much flourished in comparison with the equipment leasing industry as being clearly evident through the factual features of the industry. The reason for the same lies in the Swedish code which may be analysed as:  Real Estate Leasing: In real estate leasing the Swedish authorities have the policy of giving public property as site-lease holdings with fixed rentals for a long period of time without subjecting the same to review before the date of review, thereby flourishing the leasing of such land for development purpose. But, however in case of residential leases the laws are more tenant favourable than market oriented. The owners are not allowed to charge rents that are substantially higher than the negotiated price between tenants’ association and landlord thereby neglecting the market. Conclusion
  • 11.  Equipment Leasing: By enacting legally restricted IFRS, the Swedish authorities have been able to allow the businessman and individuals to treat both the financial leases and operating leases as operating leases. The trickle down benefit of such policy for both the lessor and lessee has led to an exponential growth for this segment;  For Lessor: For lessor treating financial lease as operating lease enables him to keep the asset in his balance sheet and charge depreciation on such asset thereby helping him to limit his tax liability without even possessing the ownership of the equipment or after even parting away from the equipment for a considerable long period.  For Lessee: For lessee treating financial lease as operating lease enables him to attain the ownership of the asset along with treating the payment made to the lessor as business expense and thus tax deductible.